It is possible to invest up to £10,200 (or £7,200 for under-50's) in a stocks and shares ISA each year. An Individual Savings Account is a means of achieving tax-free growth by investing in individual equities, index trackers, government bonds and certain other protected investments.
Long Term Growth in a Stocks and Shares
Those seeking to invest shouldn't have a short term need for the money they have invested as the money will need to be locked up for a minimum period of 5 years. Withdrawing before this timeframe could result in poor investment performance.
Those seeking to invest for more modest, short term gains should consider a cash ISA. This will mean that the investor faces no risk to their capital. Individuals with a short term need for their money should also avoid fixed rate cash ISA's as the capital is locked up for a specified term.
The Risk Profile of the Stocks and Shares ISA Investor
There is a fundamental need to establish an investors attitude towards risk. This type of ISA normally presents a greater risk to capital than a cash ISA. Most financial institutions will advise whether the ISA investment falls into a low, medium or high risk profile.
Whilst some people are happy to invest in emerging markets, others don't want to risk their capital at all. Those investors are better suited by a FTSE tracker ISA that protects the capital, but caps the potential of any gains.
Popular Types of Stocks and Shares ISA
- Index trackers. This tracks the movement of a financial index. The FTSE tracker ISA is a popular investment as management charges are minimal and movements are easy to follow.
- Protected index trackers. This works on a similar principle to the index tracker, apart from the fact that the investment capital is protected and the maximum level of profit is capped.
- Fund of funds. A fund of funds manager invests money into other funds rather than specific equities. This spreads risk, but the charges are normally higher.
- Balanced managed funds. This works on a similar basis to a fund of funds, apart from the fact that a maximum of 85% of the capital can be invested in equities.
- Equity funds. A fund manager will buy equities based on the their belief of how they will perform. The charges are higher than they would be for a FTSE tracker, but a good fund manager can achieve vastly superior returns as they aren't passive.
Those seeking long term, investment growth should seriously consider investing in a stocks and shares ISA. Be prepared to lock up any money for at least 5 years and always opt for the one that most closely matches the personal risk profile of the investor.
Those who found this article useful may find choosing the right life insurance policy of interest. If seeking to remortgage, it is worth discovering whether a fixed-rate or tracker mortgage is the right option.
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